Chinese Tech Giants Boost AI Investment Despite U.S. Sanctions

Chinese technology companies, including Alibaba, Tencent, Baidu, and ByteDance, have significantly increased their capital expenditures on artificial intelligence infrastructure in the first half of this year, underscoring their commitment to advancing AI technologies despite ongoing U.S. sanctions.

Surge in Capital Expenditure

Alibaba, Tencent, and Baidu collectively spent 50 billion yuan ($7 billion) on capital expenditures during the first six months of the year, more than double the 23 billion yuan spent in the same period last year. The investments are primarily directed toward acquiring processors and building infrastructure to support the training of large language models for both their own AI initiatives and those of other organisations.

Alibaba alone invested 23 billion yuan, marking a 123% increase from the previous year. Eddie Wu, Alibaba’s CEO, emphasised the company’s focus on meeting growing demand in the AI sector. “We’ll continue to invest in R&D and AI capex to ensure the growth of our AI-driven cloud business,” Wu stated, noting that new servers are operating at full capacity almost immediately, promising a high return on investment in upcoming quarters. Alibaba’s cloud business revenue grew by 6% in the second quarter, with AI-related product revenues more than doubling year-on-year.

Tencent reported a 176% rise in capital expenditure to 23 billion yuan, partly attributed to investments in GPU and CPU servers to enhance its cloud services. James Mitchell, Tencent’s chief strategy officer, acknowledged increased demand for GPU rentals but noted that the scale remains smaller compared to the U.S. market due to less substantial funding among Chinese AI startups.

Baidu maintained a more measured approach, increasing its capital expenditure by 4% to 4.2 billion yuan in the same period.

ByteDance’s Strategic Investments

ByteDance, the parent company of TikTok, has also ramped up its AI-related spending, leveraging its substantial cash reserves exceeding $50 billion. According to sources familiar with the matter, ByteDance is investing heavily in purchasing AI processors and expanding its computing infrastructure, including projects in Johor, Malaysia. Industry analyst Dylan Patel from SemiAnalysis identified ByteDance as the largest Chinese purchaser of AI technology, noting significant investments both domestically and internationally.

Navigating U.S. Sanctions

Despite U.S. export controls limiting access to advanced AI processors like Nvidia’s H100 and upcoming Blackwell series, Chinese tech firms are procuring modified versions such as Nvidia’s H20, designed to comply with U.S. regulations. Analysts anticipate that over a million H20 units, priced between $12,000 and $13,000 each, will be shipped to Chinese companies in the coming months, with ByteDance emerging as a major customer.

Global Comparison

While Chinese tech giants are accelerating their AI investments, their spending remains dwarfed by that of their American counterparts. In the first half of the year, U.S. tech leaders Alphabet, Amazon, Meta, and Microsoft collectively invested $106 billion in capital expenditures, signalling the intense global race to dominate the future of artificial intelligence.